Incentivising tenants to stay the term – will clawbacks be enforceable?

Incentives are commonly offered by commercial landlords to tenants in the form of short term rent deductions or contributions to the tenant’s fitout. Usually these incentives are conditional upon the lessee remaining in the premises for the term of the lease with an obligation on the tenant to repay a proportion of the fitout contribution and rent deductions upon early termination or assignment. While the enforceability of clawback provisions has always been unclear, there was commercial benefit to landlords in maintaining high rentals on the face of the lease and attracting good quality tenants through fitout contributions. The use of clawback provisions as part of these incentives was recently analysed by the Queensland Supreme Court through the lens of the penalties doctrine in GWC Property Group Pty Ltd v Higginson & Ors [2014] QSC 264, with a negative outcome for the landlord. Unless the decision is overturned on appeal, the salient message for landlords is that repayment of incentives for any reason, not just a breach of the lease, is unlikely to be enforceable.